BOOKS OF THE TIMES; Bad Banks, Big Bailouts And Bruises

By JACKIE CALMES

Published: July 25, 2012

BAILOUT

An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street

By Neil Barofsky

270 pages. Free Press. $26.

From the opening of this latest book on the government's (mis)handling of the 2008-9 financial crisis, Neil Barofsky establishes his populist narrative from his two-plus years as the ''TARP cop'' overseeing the $700 billion big-bank bailout officially known as the Troubled Asset Relief Program.

Mr. Barofsky, a former Manhattan prosecutor, is the idealistic alien sent in an emergency to Planet Washington, where he does battle with the self-important, self-serving powers entrenched there or simply taking a spin through its revolving door to Wall Street. He is SIGTARP (in Washington-speak, the Special Inspector General for TARP). But ultimately he is outmatched, and evil triumphs over good.

In the preface to ''Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street,'' it is April 2010, and after more than a year on the job, Mr. Barofsky is meeting for a clear-the-air drink with one of his nemeses, Herbert Allison, the former head of the financial giants Merrill Lynch, TIAA-CREF and Fannie Mae, who came out of retirement to run the bank-rescue program for the Treasury Department. Mr. Barofsky, wearing an unseasonal wool suit at odds with a ''Washington-appropriate wardrobe,'' is poised to let the hostess seat them at a front table of her choosing, but Mr. Allison insists on a private table in the rear. Then he gets down to business.

''Have you thought at all about what you'll be doing next?'' Mr. Allison asks Mr. Barofsky, soon adding, ''Out there in the market, there are consequences for some of the things that you're saying and the way that you're saying them.''

''Allison was essentially threatening me with lifelong unemployment,'' Mr. Barofsky concludes, and alternatively suggesting a plum government appointment some day if Mr. Barofsky would simply ''change your tone.''

When Mr. Barofsky tells his deputy of the exchange, the deputy says, ''It was the gold or the lead,'' resorting to the lingo of their joint experience prosecuting Latin American drug kingpins in New York: Cooperate and share the riches, or don't and get plugged. (With such frequent asides between the two buddies, Mr. Barofsky seeks to lighten what is by definition his otherwise numbingly complicated subject.)

Yet Mr. Barofsky goes on to say that he did not really think that Mr. Allison was threatening him; in fact, Mr. Allison ''was, in a very Washington way, sincerely trying to be helpful.'' This introductory episode not only sets the book's tone, but it also embodies the contradictions and inconsistencies throughout Mr. Barofsky's account.

He writes early on that ''I had no idea that the U.S. government had been captured by the banks,'' and at another point describes his strategy to use the press to get the attention of Congress, and by extension an obstreperous Treasury: ''Our message was simple: Treasury's desperate attempt to bail out Wall Street was setting the country up for potentially catastrophic losses.'' Yet despite such repeated condemnations of the decision-making process in both the Bush and Obama administrations, Mr. Barofsky never really concedes that the predicted losses did not occur.

He refers throughout to the $700 billion bailout, never clarifying that less than $300 billion of that amount went out the door by the time TARP expired; that not a penny went to banks during the Obama administration; and that the big banks repaid taxpayers with interest.

As ugly and flawed as the rescue process was, and as galling as Wall Street's revived bravado and bonuses can be to most Americans, the fact remains that an economic collapse was averted, and that Main Street is recovering: slowly, but typically so for recessions brought on by credit crises. As Europe's crisis persists for a fourth year, commentators around the globe have suggested that the Continent should have followed America's example.

To the extent that Mr. Barofsky acknowledges that neither big losses nor big fraud cases occurred, he credits the anti-fraud measures he pressed Treasury to include in programs and contracts. Yet his book is a chronicle of complaints that Treasury undercut, blindsided and ignored him. Perhaps the biggest criticism of Treasury Secretary Timothy F. Geithner suggested by Mr. Barofsky's account is that Mr. Geithner should have been a lot more conciliatory toward this zealous inspector general, if only to avoid becoming the biggest villain in Mr. Barofsky's morality tale.

Mr. Geithner does not fully enter the story until its midpoint. The headline grabber is a recounting of an October 2009 meeting at which Mr. Geithner erupts when Mr. Barofsky tells him that TARP's unpopularity and the public's perception of Treasury as subservient to big banks is because of Mr. Geithner's lack of transparency about the department's dealings.

'' 'Neil, I have been the most [expletive] transparent secretary of the Treasury in this country's entire [expletive] history!' he boomed, moving forward in his chair. 'No one has ever made the banks disclose the type of [expletive] that I made them disclose after the stress tests. No one!' ''